The Executive Board of the International Monetary Fund (IMF) today completed the first review of Bulgaria's economic performance under its Stand-By Arrangement, which enables the release of SDR 34 million (about US$50.7 million). The 25-month Stand-By Arrangement was approved on August 6, 2004 (see Press Release No.04/175 ) for a total amount equivalent to SDR 100 million (about US$149.2 million). The authorities continue to treat the arrangement as precautionary.

In completing the review, the Executive Board approved Bulgaria's request for a waiver of the non-observance of two quantitative performance criteria—the ceilings on general government expenditure and central government arrears—and of two structural performance criteria—on the incorporation into the Treasury Single Account of all autonomous Budgetary entities and the parliamentary approval of a draft law to use the Bulstat number as the single identification for all tax and social security payments.

"Bulgaria's macroeconomic performance in 2004 exceeded expectations under the Stand-By Arrangement and external vulnerability has decreased. The authorities' economic program for 2005 aims at continued strong economic growth, moderate inflation, and the containment of the external current account deficit in the context of the currency board arrangement. The program relies on a measured easing of fiscal policy, wage restraint in the public sector, a slowdown in credit expansion, and a reinvigoration of structural reforms.

"The authorities' fiscal program aims at a general government surplus of at least 1 percent of GDP. Given the need to reduce remaining external vulnerabilities, this modest easing of the fiscal stance will be coupled with strengthened efforts to curtail private domestic demand through measures to slow down credit expansion. The authorities' intention to save one-half of any revenue overperformance also provides an additional safeguard. To shore up the fiscal surplus objective and bolster competitiveness in the wake of a large minimum wage adjustment, wage increases in the public sector will be strictly limited. If external current account developments are weaker than expected, it will be essential for the authorities to increase their fiscal surplus target at the time of the second review in September 2005.

"The monetary program relies on temporary direct controls to reduce credit expansion. The measures recently adopted by the Bulgarian National Bank to prevent banks from taking advantage of any loopholes to evade the credit limits are welcome.

"The authorities intend to reinvigorate structural reforms after the mid-year parliamentary election to stimulate supply, ensure an adequate flow of privatization receipts, and prepare the economy for EU accession early in 2007. The structural reforms aim at improving the business climate, making the labor market more flexible, and further strengthening the public finances," Ms. Krueger stated.